Hedge Funds as the Real High-Frequency Trading Losers

By Brendan Conway

That’s the argument by Chuck Jaffe at MarketWatchthis week. Jaffe notes that hedge-fund performance has plunged in the last decade, or right around the time of HFT’s rise. Meanwhile, trading spreads for the individual investor have never been lower.

Not surprisingly, hedge-fund managers are among the people beating the drum loudest about the market being rigged.

That’s proof that this is more of a rich man’s worry than an average investor’s concern.

Bloomberg News

Brad Katsuyama, chief executive officer of IEX Group Inc.

High-frequency traders don’t care about the 100 shares of Procter & Gamble (PG) you’re trying to buy, or even the 500 or 1,000 shares of Johnson & Johnson (JNJ). There’s no real money for them in your trade.

Meanwhile, even if you are convinced they’re out to get you, the worst you wind up facing is an extra penny or two of costs. On that 1,000-share trade, that’s $20 max; nobody wants to pay more than they must, but hold those brand-name stocks for years and those few dollars are negligible. (Moreover, it could be a wash, a give-back of the benefit you received due to improved liquidity.)

Distasteful? Sure.

A reason to avoid the market? Hardly.

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